VA Establishes an Asset Limit and New Transfer Penalties for Needs-Based Pension Benefits

Q. Has the Veterans Administration announced new rules about qualifying for an Aid & Attendance Pension to help Vets with long term care expenses? I recall that they were in the planning.

A. Yes! The VA has announced final rules for those Veterans and their surviving spouses who seek to qualify for a pension to help with long term care expenses. These new rules became effective October 18, 2018. One of the rules adds clarity to the asset limit question, while another imposes severe penalties for Vets who transfer away assets in an effort to meet the threshold asset test. These rules were three years in the making and were initiated, in substantial part, to protect Veterans from aggressive marketers who were selling annuities and other financial products to Veterans, which promoted the divestment of assets just to qualify for pension.

But the new rules will also make it much more difficult for veterans’ advocates to legitimately assist them accelerate eligibility for pension, often known as an Aid and Attendance Pension, which can pay a benefit of up to $2,230 per month for a married Vet (in 2019), $1,881 per month for an unmarried Vet, and $1,209 per month for the surviving spouse of a Veteran. Here are some highlights of the new rules:

1) Net Worth Rule Is No Longer Vague: Under the old rules, a Vet could only qualify for pension if his Net Worth met VA regulations, which were vague and uncertain, resulting in inconsistent awards and denials by VA adjudicators. By contrast, the new rules adopt a “bright line” test to improve consistency. A qualifying Net Worth will now be the same as for a married couple under the Medi-Cal program, currently $126,420 (in 2019), and this will be the rule whether the Vet is married or single. The Medi-Cal program refers to this amount as the Community Spouse Resource Allowance (“CSRA”), and it will adjust annually by an inflation factor. However, unlike the Medi-Cal program, the VA will include in this number both (1) non-exempt assets (such as savings) as well as (2) the Vet’s annual income (after adjusting out qualifying medical expenses). Including this annual income in the Net Worth test makes the calculation of Net Worth for VA Pension benefits quite different from the calculation of a qualifying resource allowance under the Medi-Cal program. That said, the new rules do bring a “bright line” test to the VA pension rules, and is considered a vast improvement over the previous vague standard for determining eligibility.

2) Transfer Penalties Now Imposed: Under the old rules, a Vet could transfer away assets to adult children, or purchase an irrevocable immediate annuity, and immediately bring down his Net Worth to qualifying levels. There was no transfer penalty. This planning option has now been gutted. Now, any excess Net Worth transferred away within three years of application will trigger a penalty period of as much as five years, depending upon the value of the transferred assets, during which time the Vet or Surviving Spouse will be ineligible for Pension. The penalty period will only start running in the month of the last such transfer, heavily penalizing serial transfers. The penalty divisor will be the Maximum Pension Rate for a Married Vet, currently $2,230 /month (in 2019). The transfer penalty provisions are a major development and will all but eliminate crisis planning. Thus, a transfer of excess assets (aka ‘covered assets”) in an attempt to bring the Vet down to the qualifying Net Worth ceiling will now generate a period of ineligibility calculated by dividing the total of all such transfers made within the three year look back period by the current penalty divisor. Example: A transfer of $100,000 will generate a period of ineligibility for pension of 44.84 months ($100,000 / $2,230 = $44.84 months).

3) Purchase of Annuities Now Eliminated: Once the new rules become effective, a Vet will no longer be able to purchase an irrevocable annuity to convert excess net worth into a stream of income. Such a purchase will be considered a transfer of assets and will trigger a transfer penalty.

4) Medical Expense Deduction More Liberal: Some good news: the new rules expand the definition of medical expenses that will be allowed as a deduction from the Vet’s income, for purposes of both reducing his Net Worth and increasing his Pension Award. It should now be easier to qualify expenses incurred for home care, even if provided by an adult child, as well as care in assisted living facilities.

Update for 2020: As of 12/01/2019, the VA has announced that the New Net Worth Limit to qualify for Pension is $129,094. The new pension rate for a Single Vet qualifying for Aid & Attendance is $1,911/month and for a married Vet qualifying for Aid & Attendance the rate is $2,266/month. The Penalty Divisor for transfers made within three (3) years of application has been increased slightly to $2,266.